Monday, May 24, 2010

American Express Declines N.C. Tax Incentives

Last week I featured the latest CEO survey results on the Best and Worst States for Business 2010, and North Carolina ranked #2 for the best state business climate (behind #1 Texas) with B+ grades for both "taxation and regulation" and "workforce quality" and a grade of A- for "living environment."

"American Express is planning to bring a $400 million data services center to North Carolina, and it will do so without the types of incentives many companies look to pry from state and local governments. American Express already has a Greensboro call center that employs 2,000 workers. Local officials had considered offering up to $13 million in incentives to entice another facility."

"A common perception among lawmakers is that companies don’t care about good tax policy. If forced to choose between broad-based, low-rate, neutral taxes, or special targeted tax incentives that benefit only their company, conventional wisdom is that companies prefer targeted tax carve-outs every time.

But this is often not true. Many large companies are well aware of the dual-edged nature of special targeted tax incentives. Tax preferences designed to boost corporate investment may provide short-term advantages to some companies—and allow lawmakers to take credit for new jobs in campaign speeches—but in the long run they add enormous complexity to the code, and ultimately transform the tax system into an economic minefield of narrow bases and punitively high rates."

MP: In this case, it looks like the overall low-tax, business-friendly climate of North Carolina was more important to American Express in the long run for its facility expansion decision, than the short-run tax benefits it was offered. Maybe more states should follow top-ranked states like Texas and North Carolina and create a permanent, ongoing favorable business climate with low taxes, small government and right-to-work laws, rather that try to offset their generally anti-business environments with some publicity-generating targeted tax incentives (like 49th ranked Michigan and its generous 40% refundable tax credits for making films in the state).